A Study on Costs, Risks and Competitiveness of Palm Oil Fruit Dealers’ Business in Malaysia

Abstract

This exploratory study aims to describe the nature of palm oil intermediary business focusing on the costs structure,
risks and competitive challenges. This study employs qualitative research design. Five fruit dealers (FD) are involve
in the interview. The findings show that palm oil fruit dealer business requires enormous amount of cash and
equipment investments during the start-up and growth stages. In addition, FDs must comply with specific
requirements to apply for the operating license. The risks are divided into non-controllable and controllable risks.
The non-controllable risk refers to the external source of risks such as fresh fruit bunch (FFB) shrinkage due to
weather factor, volatility of market price and inconsistent mills purchase decisions. Meanwhile, the controllable risk
consist of the probability of unripe FFB purchased from the smallholders. Furthermore, the finding indicates that the
business competitive structure is relatively intense due to strong bargaining power of buyers and sellers, high service
substitutability from nearby FDs, high rivalry among existing firms, and the need of special equipment. However, the
threat of new entrants is low due to the high entrance and exit barriers of the business. Finding of this study
suggested that agriculture intermediaries have important roles within the palm oil smallholders’ value chain.
Therefore, this study disseminates preliminary insights on FDs’ business in terms of costs, risks and challenges.